One of Canada’s largest pension funds has welcomed the volatility that gripped financial markets in the summer and is forecast to continue for some while.

Mark Wiseman, executive vice-president for investments at the Canada Pension Plan Investment Board, said: “We find that times of instability and uncertainty often create opportunities for us. We found that in 2008, and we are seeing opportunities now.”

The Canada Pension Plan – with a portfolio worth C$148bn – has a guaranteed income stream from the compulsory pension contributions of almost every Canadian – employees in Quebec contribute to its own near-identical version of the CPP – and sees itself as a long-term investor.

Growing portfolio

Its portfolio is forecast to grow to C$275bn in the next decade and the fund is expanding abroad – in global property and emerging markets – and continuing the big programmes in the private equity and debt markets for which Canadian pension funds are renowned.

In the past few months, the Canada Pension Plan has acquired property in the US, London and Hong Kong, invested in a gas infrastructure project alongside the Abu Dhabi Investment Authority and teamed up with Apax Partners to buy a US medical devices company, Kinetic Concepts.

Its UK property investments include a 25% interest acquired for C$468m last November in Westfield Stratford City, a retail and entertainment development next to the 2012 Olympics site. More investments are on the cards.

Wiseman said: “I can’t speak about specific investment opportunities, but we have certainly seen an increase in the number of them in our pipeline over the summer. There are interesting things beginning to happen in private equity now, which has been quiet for the past several months. And in public markets, we are beginning to see some attractive opportunities there too.”

CPPIB, the investment office of the pension plan, invests in private equity in two ways; buying firms directly with partners, or the more conventional route of investing in private equity firms’ funds. It has a programme worth C$17bn, which Wiseman says is ticking over as normal.

Mega-buyout funds

He does not share the scepticism that some institutional consultants have developed toward the large, highly geared “mega-buyout” funds since 2008, but concedes some deals were undoubtedly over-levered and over-valued during the boom.

“We were guilty of that as well,” he said. “[But] by and large, [the boom-era deals] have worked out better than most people expected during the depths of the financial crisis. Private equity firms have been very adept at restructuring these. There is nothing fundamentally broken in the private equity model.”

But he believes private equity still faces problems, given the large capital overhang of unspent investors’ money built up in the boom and now chasing good-quality deals that are thin on the ground.

Wiseman is also critical of some executives’ desire to cash out by listing their firms. He said: “We are absolutely very sceptical of publicly traded private equity managers, because it has the potential to misalign interests between the limited and general partners.”

He is similarly sceptical of the banks and fund managers that have launched infrastructure funds. CPP invests directly in infrastructure worldwide, believing that managers’ fees eat too far into returns.

CPP has also been cutting out the middleman when it comes to lending money to companies. It began a direct lending programme in 2008 to help firms that could no longer secure finance from troubled banks, and has since built up a portfolio of loans worth C$2bn.

Wiseman said: “As credit markets have backed up again, there have been more opportunities for our private debt business, in particular real estate debt.”

Recruitment

CPPIB plans more recruitment for its satellite offices in London, which currently employs 26, and in Hong Kong, with 15 of its total 656 world-wide staff. Most of the new jobs will come in private markets and real estate expertise, but it also wants to add more expertise to its fund manager-research teams; it has C$7.3bn with 23 third-party active fund managers.

Wiseman said the expansion plans are underpinned by CPP’s long-term aims to invest more abroad, and, in particular, to increase its exposure to emerging markets, which currently stands at only 5% of the fund’s assets.

Since the inception of its active management strategy in 2006, the Canada Pension Plan has returned about 3.3% a year, which cumulatively adds up to 1.8%, or C$1.7bn, more than its internal target. CPPIB cost about C$1bn to build and run.